Tax season is upon us! So, be prepared to add this to your to-do list. If you’re new to filing your taxes, then the buzz around tax season may be making you anxious. You may be wondering: where do I start? The fact is, filing your taxes correctly is an important financial responsibility.
Taxes are mandatory financial contributions that Canadian residents must make to the government. The government uses these funds to cover social programs, debts, and operations. It’s our duty as Canadians to pay our taxes, and by filing your taxes you ensure you’ve paid all that is owed to the government. The benefit of filing taxes is that for some expenses you can claim a tax credit, which you will receive as a tax return.
Tax season typically occurs from February to April, but the deadline often isn’t firm. This means that if you haven’t started your taxes, there’s still time. The 2021 deadline to file your income tax return is April 30. Self-employed taxpayers (and their spouse or partner) have until June 15 to complete the process.
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Top tips for tackling tax season:
1. Create a “My CRA” Account
To start tax season on the right foot, don’t forget to create a “My CRA” account (Canada Revenue Agency). Having an account can make filing your taxes easier. Here’s how having this account setup can help you stay on top of tax season:
- Autofill certain fields in your tax return
- Check the status of your tax return
- Setup a direct deposit to get your tax refund sent faster
Creating this account doesn’t take long, but it can go a long way towards simplifying tax season.
2. Discover the Deductions and Tax Credits you can Claim
When you file your taxes, the amounts you file are based on your income along with expenses you’ve had throughout the year. Depending on your unique circumstances, tax deductions and tax credit you can claim will vary. Here are some of the considerations that may affect your taxes:
- Are you a student?
- Do you spend money on childcare?
- Have you donated to a charity?
- Do you have an insurance policy?
These are just some of the scenarios where you would be eligible to claim these expenses on your taxes. However, there are plenty more circumstances that would make you eligible for additional tax credits, so understanding which ones apply to you is important.
Pro Tip: Consider what you can claim and keep track of these expenses throughout the year in preparation for tax season. If you do this, you’ll be way ahead of the game and won’t be scrambling for documentation prior to the deadline.
Get Your Forms
Before filing your taxes, you need all the appropriate forms and paperwork. Gather these forms from your current employer, post-secondary school, investment companies, etc. There are also various receipts of expenses that you can use as evidence to make other tax claims.
Some of the forms you should have on-hand while tackling taxes include:
- T4 – Statement of Renumeration Paid
- T4A – Statement of Pension, Retirement, Annuity and Other Income
- T5 – Statement of Investment Income
- T2202 – Tuition of Enrolment Certificate
- Mortgage and property tax documents
Also consider receipts such as charitable donations, medical costs, moving home costs and childcare. Keep any receipts or paper trails that you can use as evidence for these expenses.
3. RRSP Contribution
An important consideration to make during tax season is to determine if you can afford to maximize your Registered Retirement Savings Plan (RRSP) contribution. By maximizing your RRSP contribution you can get a tax break and save money. Keep in mind that there is a limit to how much money you can invest in your RRSP each year. View this resource to understand how to calculate your contribution limit.
If you don’t already have an RRSP account open, decide if opening an account is right for you. If you can afford to invest in these tax-sheltered accounts and put some money away, then it may be in your best interest in order to pay less taxes.
The advantage of contributing to your RRSP before the tax deadline is that you will likely be eligible for a larger tax return. This means you can also reach your retirement savings goal faster by reinvesting the tax refund into your RRSP.
How to File Taxes in Canada
Filing your taxes can feel complicated and overwhelming, but it doesn’t have to be. The government of Canada outlines six ways (some options are free, and others will cost you money) to file your taxes depending on your situation:
- Certified tax software like TurboTax or Wealthsimple Tax.
- Complete a paper tax return.
- Authorize a family, friend, or accountant to complete your taxes on your behalf.
- Attend a community tax clinic with volunteers who will help you file your taxes.
- Discounter (tax preparer) who calculates your refund and pays you a portion of your refund right away.
- Automated phone line.
Click here to find out which approach is best for you.
Understanding how to file your taxes is an essential skill that will help you throughout your life – remember tax season happens every year! By mastering the process or leveraging helpful resources, you can make tax season as seamless and stress-free as possible.
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